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Sunday, 18 March 11:34 (GMT -05:00)

Stock and commodities markets

Nobody Can Predict Today’s Crude Oil Market

Today’s global market of crude oil keeps on bringing new surprises. This means it more and more difficult for international experts to predict future oil prices.




In his articles, oil market observer Sergei Shelin says that the representatives of the so-called international expert community failed on their forecasts once again the other day. To be more specific, nobody could have thought that the recent decision to extend the so-called Vienna Accord during the recent OPEC summit in the capital of Austria would eventually result in lower oil prices instead of pushing those prices higher.


For those of you who don’t know, in late May 2017, OPEC members and some of their non-OPEC peers led by Russian agreed to extend the agreement signed in November 2016 and expiring in July 2017 for 9 more months to March 2018. The agreement implies cutting their oil production for the sake of capping the oversupply in the global market and restoring the balance to eventually drive oil prices higher.



However, instead of going higher, the prices stared going down again against all the bullish predictions made by most of the representatives of the international expert community. Just in a couple of days, the market shrank by 5%, thereby making those experts fail on their forecast and starting to revise them and adjust them to the new market reality. To be more specific, the experts are trying to make lame excuses for their failed predictions by saying that the downtrend was triggered by the fact that the terms of the agreement extensions supposedly failed to match market expectations.  Now those strategies are trying to persuade us that the market actually expected the cartel to extend the agreement for 12 more months instead of 9 months.

The whole truth is, nobody seems to predict the short-term effect of various events on the global market of crude oil. Still, it’s possible to estimate an approximate price range and a long-term market tendency with a relatively high degree of certainty and precision. 



At the end of last year, the cartel and their outer peers signed an agreement hoping for 2 things, but those expectations and hopes eventually failed. To be more specific, they hoped to see higher prices at the expense of making the oversupply shrink since they thought that the American shale oil companies would not be capable of restoring their production capacities fast to make up for the production cuts coming as the result of the Vienna Accord. They also hoped that the abundant supplies of crude oil around the globe would start shrinking fast on those production cuts, thereby creating space for much higher oil prices further down the road.
However, they failed on both of those 2 expectations since the U.S. shale oil industry recovered in an instance to fill out the market vacuum created by the cartel. Moreover, those shale oil companies managed to reduce their production costs to make their businesses more competitive even maid relatively low oil prices. Yet, the production costs keep on going down, thereby creating more threats for conventional oil producers. Each and every weekly report coming from the USA over the last few weeks has been continuously reporting about an increase in the amount of functioning oil rigs as well as the crude oil produced by them. As for crude oil inventories, they are indeed going down, but at a much slower pace than expected.


So, the bottom line is, the cartel has already failed once and may well fail again since there is no significant reason to expect any radical changes over the period. This also lead us to believe that all the brave forecasts promising us $70/b are not as real as one might think a couple of months ago. Indeed, the prices are likely to stay around $50/b, but that remains to be seen…



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